A credit score is the number that holds so much power. That number can dictate whether or not you buy a home, car, or large- screen television. Anyone trying to get a home mortgage or other type of loan knows the impact it can have to the process, which is why it's a good idea to know your score before you apply.
While federal law allows you to get your credit report free once a year at AnnualCreditReport.com, that doesn't include your credit score, also commonly known as a FICO score. To find out the number, you will need to buy it from one of the three credit reporting companies, Equifax, Experian, and TransUnion, or frommyfico.com. (Here's the catch: the numbers will be different since each company has their own calculation formula.)
Your mortgage lender can also find out for you. John Bauer, Jr., senior Vice President and Director ofConsumer Lending Administration for Core First Bank, said many lenders use a tri- merge credit report, which gives the scores from Equifax, Experian, and TransUnion.
"Then we use the middle score, which is not always from the same company," he explained.
Liesel Kirk-Fink, real estate broker for Kirk & Cobb, Inc., and current president of the Topeka Area Association of REALTORS(R), wrote in an e-mail, "What I can say is that credit scores are a moving target with regularly changing guidelines between Fannie Mae and Freddie Mac, as well as FHA and VA."
In general, the factors that make up your credit score include:
- 35 percent is your payment history. Did you pay your bills on time, or if not, how late were you? How often did you make late payments?
- 30 percent is how much you owe on each of your accounts and how close you are to your limits.
- 15 percent is your credit history, which takes into account how long you've had each account.
- 10 percent is what type of credit you have, such as car loans, credit card debt, student loans, and mortgages.
- 10 percent is new credit, such as how many new accounts you have or tried to apply for recently.
According to Bauer, the average credit score in the United States is 723. For Kansans, the average is 697. How high your credit score needs to be to obtain a mortgage depends on other details, including how much of a down payment you plan to make.
Bauer noted, "It can be as low as 620 but the borrower will be required to purchase private mortgage insurance [PMI] for an 80- percent loan-to-value application." However, there is a catch. "Most PMI companies require a 650 credit score before issuing a policy."
"The standard minimum credit score on an FHA loan is 640," Kirk- Fink said. "However, some lenders lend on a 620 score but with stricter guidelines. For a conventional loan, 680 is normally a minimum, but rate and private mortgage insurance can be affected. For the best rate available on conventional loan, 740 is a normal standard. VA loans can vary, but generally speaking I would say 620. Some lenders will go as low as 600, but again with strict guidelines."
One big mistake soon-to-be homeowners make is to take out loans on major purchases before they close on their new house. That new furniture for your home or a shiny new car may seem like a good idea, but your score will take a hit. This could impact your home's closing if the score drops too low.
Kirk-Fink also advised, "It is important to meet with a lender promptly and invite your REALTORS(R) along for additional prompting of questions. Your REALTORS(R) is an advocate to help all parties consider their options. The lender can guide you to write letters if there is a need to request removal of misreported information. Often lenders can stop a borrower from making poor credit decisions."
(c) 2014 ProQuest Information and Learning Company; All Rights Reserved.
Original headline: In general, the factors that make up your credit score include:
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